TUPE And Service Provision Changes – The Correct Approach

The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006 introduced the concept of a transfer of undertakings by way of a service provision change. This was intended to deal with practical difficulties created, in a wide variety of commercial settings, by the need under TUPE 1981 to establish that there had been a transfer of a stable economic entity which retained its identity.

Under Regulation 3(1)(b) of TUPE 2006, the definition of a transfer of an undertaking can include outsourcing, insourcing and a change in the provision of activities or services carried out on behalf of a client between one contractor and another, where the conditions set out in TUPE Regulation 3(3) are satisfied, namely that:

‘(a) immediately before the service provision change — (i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client; (ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and

(b) the activities concerned do not consist wholly or mainly of the supply of goods for the client’s use.’

In Metropolitan Resources Ltd. v Churchill Dulwich Ltd. and others, the Employment Appeal Tribunal (EAT) held that in determining whether or not there has been a service provision change, the Employment Tribunal (ET) must consider whether the service provided after the change was fundamentally or essentially the same as that provided before it took place. The answer to this question will be one of fact and degree, to be assessed on the individual facts of the case.

Migrant Helpline (MH), on behalf of the Home Office, contracted with Churchill Dulwich (CD) for the provision of accommodation services for migrants. Before the contract expired, MH entered into a replacement contract with Metropolitan Resources Ltd. (MR) to provide such services at a different location. When the contract with CD expired, it was not renewed and its ten employees argued that they had transferred to MR under the service provision rules of TUPE.

The ET found that the essential service provided by MR was the same as that provided by CD. There was no disagreement in this case that the conditions in Regulation 3(3) were not satisfied.

On appeal, the EAT held that the ET had applied the correct test and reached a factual conclusion, which was open to it. It had not made the error of looking for a transfer of employees rather than the transfer of the performance of the essential activity.

MR had claimed that there were differences between the service it provided under contract to MH and that provided by CD, but the EAT agreed with the ET that none of these made it impossible to regard the essential service provided as the same. In addition, the facts that the transfer did not take place on one day, that the employees did not leave CD on the date identified as the date of transfer and that the service was provided at a different location were not fatal to the existence of a service provision change, provided these were taken into account in reaching the factual conclusion.

If you are re-tendering contracts, considering entering into a contract for the provision of a service previously provided by another contractor (even if by tender) or are in danger of losing an existing contract for the provision of services to a client, you should take advice on your legal position.

The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© , October 2009

Please contact:

Emmanuelle Ries

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